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REIT investing in on-site solar power solutions for businesses

GAIA Fund Managers has launched South Africa’s first specialist real estate investment trust (REIT) investing in on-site private electricity generation for commercial and industrial clients. 

Gaia Renewables REIT is partnering with Blue Energy Africa, an on-site developer of bespoke, integrated clean energy solutions for commercial and industrial clients. Blue Energy has a well-developed pipeline of projects that aims to take a selective portion of the total market for commercial and industrial renewable energy, which is estimated to be worth over R200 billion.

Renier de Wit, managing director of Gaia Fund Managers says: “A brand-new system demands a hefty capital outlay and when megawatt systems enter the fray, it strains cash flows by tens of millions of rands. In addition, power generation is not part of the core operations of most businesses. They would rather invest in income-producing assets and have a recurring operating expense for their electricity bill.”

This conundrum presents a unique opportunity to provide businesses with a renewable energy power solution owned by a third party, with predictable cash outflows over the medium term. 

In terms of the structure, Gaia Renewables REIT will issue batches of preference shares, aimed to be listed on the Cape Town Stock Exchange, and open to qualified investors to trade it freely. The REIT will fund the on-site solar power projects. The first batch of preference shares – which will be listed after the current fundraising round – targets a listing in June 2023.

Gaia has raised and deployed more than R3.5 billion over 12 renewable energy transactions since 2012, showcasing its ability and track record of swiftly deploying investors’ capital to earn good, consistent and inflation-beating returns. 

Whereas large utility-scale renewable energy projects can take up to two years to construct and, thereafter, only offer a return to investors, on-site solar power solutions are built within a few months, with investors likely to receive their first distributions within 12 months. 

The on-site solar power projects give investors a predictable period of cash flows as electricity off-takers (commercial and industrial clients) sign multiyear power purchase agreements with the developer. In terms of these 10- to 20-year agreements, the off-take price of electricity typically increases by a fraction of the inflation rate.

In addition, the renewable energy solutions to businesses dovetail with the UN’s Sustainable Development Goals and, therefore, fit in with investors’ ESG mandate. Solar energy, for example, aligns with the UN’s SDGs for affordable and clean energy, as well as climate action. 

Finally, with underlying infrastructure assets (physical solar power-generation units), South African retirement funds can utilise the Gaia Renewables REIT when considering bulking their allocations to infrastructure. According to recent changes, retirement funds are allowed to invest up to 45% in infrastructure assets. 

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